Does Easley Favor More Taxes?

RALEIGH – Maybe I’m missing something important, but I think that Gov. Mike Easley called for another huge tax increase over the weekend and virtually no one noticed.

As reported in The News & Record (but apparently nowhere else), the governor floated his tax-hike trial balloon on Friday at a Greensboro speech to members of the North Carolina Farm Bureau Federation. First, he defended his administration’s decision to withhold nearly $210 million in local tax sharing and reimbursements to help close another state budget deficit totaling more than $1 billion in the current fiscal year.

Many city and county officials have reacted with dismay, even anger, to the governor’s announcement of the move last week. They say they may be forced to raise property taxes or cut services in the coming months to compensate for the lost revenue, which really isn’t state largesse but rather a long-established way that the state in effect collects local taxes and then passes them along to the appropriate jurisdictions.

Realizing the political hornet’s nest he stirred up with the local revenue issue, Easley sought at the Farm Bureau speech to answer the obvious question: Will the state stiff localities again in the fiscal year beginning in July? It is also likely to feature a big state budget deficit. But rather than say he would withhold revenues to local governments again, the governor pitched a different idea. What if the General Assembly acted during the 2002 legislative session to authorize localities to impose a half-cent sales taxes in exchange for losing the reimbursements?

Recall that this tax authority-for-reimbursement swap is already in the offing. The half-cent state sales tax hike passed by the General Assembly last year is set to expire in 2003, when the local governments get the option of taking it over as a revenue source. Trust me, they all will. During the fiscal year beginning this July, the state sales-tax hike was projected to generate about $400 million.

Presumably, then, if Easley is serious about letting local governments impose the rate starting this July, rather than a year later, he isn’t simultaneously talking about cutting the state sales tax. His budget is already wildly out of balance with the added revenue. So moving the sales tax hike for local governments ahead a year means, in effect, raising the tax burden on North Carolina by another $400 million during the 2002-2003 fiscal year.

Easley reportedly told the Farm Bureau that no tax or other legislative measure is going to repair state and local budget problems for good. “The long-term solution for this is economic growth,” Easley said.

So raising taxes another $400 million starting in July, during either a recession or what is likely to be an anemic recovery, is his proposed solution?

Huh?